His argument is: 1) They can lock you up for refusing to decrypt something. 2) Encrypted data looks exactly like random noise. 3) Encrypted data can be hidden in any file. 4) Therefore, they can allege that nearly anything is encrypted and lock you up on that basis. I'd say that's terrifying. Another thought: doesn't this make it possible to frame someone by writing random data to their hard drive?
The argument isn't totally correct. The Police can't just make allegations and force you to surrender keys - they have to convince a judge that the allegations are true, and that getting the keys to your random noise will produce evidence. RIPA is objectively flawed legislation, but it definitely doesn't "outlaw encryption" by anything less than a very long stretch of the imagination (as appears in this article).
But it's not all that unusual for the gov't to really "have it in" for someone, but not be able to pin the crime on them, as with Al Capone.
In his case, the government didn't think it could pin the true charges on him, so he was actually convicted on tax charges. The tax code is big, obscure, and no expert agrees on the detailed interpretation, so it's not too hard to find some technicality that will convict anyone.
This encryption thing could easily be misused the same way: they can't prove you're a bad guy, so they trump up some technicality charges just to get you locked up.